Understanding the “Emergency Manager” option in P.A. 436
P.A. 436, known as the Local Financial Stability and Choice Act, was passed to give more flexibility to financially challenged communities. While P.A. 436 is similar to the previous laws, it provides four options to address a community’s fiscal situation.
If the Governor determines a financial emergency in a community, the local government may appeal the decision in court. If the local government loses the appeal or chooses not to appeal, they can select from one of four options in the new law to address the fiscal emergency:
- Consent Agreement based on section 8 of law
- Emergency Manager as outlined in section 9 of law
- Neutral Evaluation process in section 25 of law
- Chapter 9 bankruptcy in section 26 of law
The guidelines for choosing a consent agreement did not change in P.A. 436 and are outlined in a previous article, Michigan Consent Agreements: What You Need to Know from August 2012.
This article will cover the Emergency Manager (EM) option of the law.
If an EM is appointed, this person is authorized to act for and in place of the local governing body and administrative officer of the community. The governing body only retains any powers authorized by the EM. The EM has broad powers to resolve the financial crisis and insure the fiscal accountability of the community to provide services for the health, safety and welfare of its residents.
An EM must meet the following criteria for the position:
- Must have minimum of five years experience and expertise in business, financial or local or state budgetary matters
- May be a resident of the local government but not required
- Must be an individual – not an organization or firm
- Serves at the discretion of the governor
Once appointed, the EM will continue in this capacity until removed by the governor or state legislature; the financial emergency is resolved; or after serving a minimum of 18 months. At this time the EM may be removed by a two-thirds vote of the community’s governing body. If it is a strong mayor form of government, the mayor must approve also.
If the EM is removed by this action and the community has not breached a consent agreement under this law, the local government is eligible to negotiate the consent agreement option with the state treasurer.
If the EM has not served at least 18 months, the local government may petition the governor to remove the EM. If this is granted, the local government may proceed under the neutral evaluation option.
Role of the Emergency Manager:
- Develop or amend a written financial plan for the local government. This plan must ensure that services essential for the health, safety and welfare of the community are provided
- Handle all operations of the local government based on the resources outlined in the plan, including budgets, payments and appropriations
- Pay all scheduled debt service requirements of bonds, notes, municipal securities, contract obligations and other uncontested legal obligations
- Modify, terminate, renegotiate contracts as outlined in section 12 of the law
- Deposit required payments into the pension funds for the local government
- Remove members of pension board if the funds are not actuarially funded to 80 percent
- Consolidate or eliminate departments; transfer departmental duties; remove department heads and administrators other than elected officials
- Order millage elections consistent with Michigan election law
- Apply for loans from the state on behalf of the local government
- Enter into agreements with creditors to settle debts of the local government
- Enter into agreements with other local governments to provide services, joint exercise of power, or to transfer functions and responsibilities
- Initiate court action to force compliance of orders
- Initiate (with Governor’s approval) municipal bankruptcy if no reasonable alternative will work
The EM must submit a financial and operating plan (and educational plan if a school district) to the state treasurer. This plan may be modified as necessary with notice to the state treasurer. The EM is required to hold a public information meeting on the plan within 30 days of submitting it to the treasurer.
The Emergency Manager is immune from liability and any person employed by the EM during this process is immune also.
The Frequently Asked Questions About the New Michigan Local Financial Emergency Law [Public Act 436 of 2012] from Michigan State University Extension provides more in-depth information about the law and each option. Also see Michigan’s New Emergency Manager Law from March 2013.